Maverick Spending – how could you tackle the issue and minimise it?

It is Monday morning again. You receive a call from the accounting department that some goods were delivered and there are no matching invoices. You suspect where the issue is and investigate in detail. Equipment for a new person in Marketing and furniture for the office of the new Operations director were bought without authorisation, from suppliers you’ve never heard of, with payment terms never discussed with you. It is a story that repeats almost every week, but now you are committed to deal with it once for all.

The level of maverick spending differs greatly between organisations, but a recent study by CIPS has found that it could be as high as 80%. The bottom line of this is that at best no saving is achieved for the company however, it could actually result in a for the company.

Maverick spending can take many forms; purchasing outside of the preferred channel or supplier, or those that do not follow the setup contract rules and miss on hard negotiated savings. Ineffective purchasing also comes with a range of other issues, e.g problems with payments, supplier management, fraud or difficulties enforcing the terms of business. Large amounts of these purchases happen because employees or their local managers think their transaction is insignificant or it does not matter to the overall picture.

SourceDogg helps you to take measures to get maverick spending under control. Here are some examples:

P2P policy needs to be clear and need to be communicated

A strict policy must be enforced by the management, with clear and understandable rules on how/when Business Users are allowed to make the purchases. The easiest way to buy something is to simply call a favourite supplier and place the order, so this will be the behaviour that will need to change, and it will require a commitment from the management of the company. Business users will need a simple and effective solution to replace such behaviour and Guided Buying could be that solution.

We offer a customisable front page of your organisations procurement platform that can become the wiki of procurement activity for every user. The content will include the links to 3rd party suppliers’ catalogues such as Amazon for Business, internal links to policy documents and customisable questionnaires that will direct the user to relevant requisition forms or RFx forms based on what they need.

Tailor the P2P processes

It could be argued part of the maverick spending happens because the Business Users do not know or understand the policies in place, resulting in looking for simple solutions for their pending problems. The users do not know where or how to buy the products they urgently need and therefore are going for the simplest possible solution. One size does not fit all in the P2P, you should, therefore, have designed processes for buying various types of products or services. For example, buying the raw material needed for production does not follow the same process as buying indirect services.

In SourceDogg you could address this by creating a range of very specific and customisable requisitions forms to match every type of spending that occurs in your organisation. Each of these forms could have a different set of approvers, and therefore relevant people will be deciding about purchases for their assigned category, meaning that no money is spent on something that is not needed.

Better Supplier Master Data management

In many cases, maverick spending outside the approved supplier list occurs because the user does not have enough information about the products available from existing Suppliers. Therefore, they reach outside of the approved circle and make a purchase from a supplier who is not verified and no or very little business terms have been agreed.

We recommend using the functionality of SourceDogg and saving relevant information about individual suppliers in their supplier profiles. The information collected could extend from basic contact information to categories of products or services provided. It is also possible to build a catalogue of products or services datasheets, currently available from your existing supply chain. Using this feature, the user can find the supplier selling the product they are looking for in a matter of seconds. From there, they can create a requisition, get it approved by their manager and generate a PO (threshold and permissions permitting) or ask the procurement department to tender for the product.

---

 

SourceDogg are attending Procurement Leaders – Data, Intelligence and Technology Forum 2018. Catch-up with the team to understand the latest updates and how you can leverage data and technology.

Use our free Brexit Risk Assessment tool:

Collect Brexit data from unlimited suppliers for free via SourceDogg.
Collect key data on your suppliers exposure to Brexit.
Get the data now so you can make quick decisions when the rules of Brexit are clear.
Easily produce a report and present to your Board.

Understand your Brexit readiness – How it works:

Contact our team to set-up your account
Use our ready to go Brexit Risk Assessment Tool
Invite your suppliers to take part
Add your Subject Matter Experts to review responses and identify risk
Generate a report
Free to use

SRM – Get the basics right – start with clear communication

Supplier Relationship Management is a complex undertaking. To do it right you need to stratify your suppliers, establish a governance structure and organise your teams, design a programme to foster supplier development, and implement performance metrics and service level agreements.

This kind of project involves buy-in and cooperation from numerous stakeholders, time, money and re-deployment or hiring of new staff.

So, what we’re saying is, don’t be too hard on yourself if haven’t managed to get this far. In our experience most organisations haven’t and for most of your suppliers, you’ll never need to.

However, one thing you should be asking yourself is – can I communicate effectively with my suppliers?

Without a doubt, this is the root of 90% of the problems that will come up in the course of any relationship you have with a supplier (or anybody for that matter).

Also, good communication is something you should be practicing with every supplier, not just a select few that would form the basis of a usual SRM process.

We would argue that clarity is the key to effective communication. This is especially true in when dealing with your Suppliers and when they are dealing you, their customer.

Take this common scenario:

Supplier receives a one line email from someone in your company saying “Hey, widget x missing”. This lands in some generic shared mailbox. Two weeks go by and nothing happens. The project has shut down because “widget x” is still missing. Supplier A’s Key Account Manager is hauled in to explain themselves. The first thing they’ll probably say is that they didn’t even know about the issue and they’ll get straight on it. But it’s too late now. Everyone is one the defensive, cagey, and looking to either point fingers or save face. Another relationship damaged over nothing. They think you are unreasonable and you think they’re unorganised. This all could have been avoided through clear communication.

So what amounts to clear communication when dealing with a Supplier?

Here’s what we think you should be telling them:Take this common scenario: Supplier receives a one line email from someone in your company saying “Hey, widget x missing”.

This lands in some generic shared mailbox. Two weeks go by and nothing happens. The project has shut down because “widget x” is still missing. Supplier A’s Key Account Manager is hauled in to explain themselves.

The first thing they’ll probably say is that they didn’t even know about the issue and they’ll get straight on it. But it’s too late now. Everyone is one the defensive, cagey, and looking to either point fingers or save face. Another relationship damaged over nothing. They think you are unreasonable and you think they’re unorganised. This all could have been avoided through clear communication.

• What do they need to do – write it down clearly
• When it need to be done by – give them a date and time
• How important is it and what is the priority – try to be realistic

But that’s just step one. The next place lots of people fall down is the follow-up when the Supplier gives you an answer. If they don’t hear otherwise, they will more than likely assume everything is OK and move on with their lives. Don’t allow things to fester or go unresolved.

With that in mind:

• Be clear that you are happy or unhappy with the Supplier’s resolution
• If you aren’t happy make the supplier respond and repeat until a resolution is reached.

These are all obvious suggestions when you give them more than a few minutes thought, but this basic lack of communication causes endless issues in businesses day to day interaction with Suppliers. The main cause of this is a lack of structure and consistency. People a sending poorly worded emails back and forth to different points of contact. Nobody has clear visibility of all the outstanding issues. People go missing and can’t pick up where another left off. In a nutshell, lack of clarity again.

SourceDogg’s SRM module helps you get a structure in place to eliminate this issue. This is how we do it:

• All communication on Key Actions or Issues is stored in one place and is visible to the Supplier and Buyer. A team can be created on both sides with access to this information.

• Each Key Action must have a description (with supporting documents if required), a deadline date, and a priority. The Supplier knows what has to be done, when it has to be done by, and how big a deal it is.

• Suppliers have to describe what they did to close out the issue or action and submit his for review.

• Buyers have to either say they are happy (mark as complete) or not (reject) and send back to the supplier. This process repeats until the action is complete or the issue is resolved.

No confusion and no ambiguity. Everyone can see what’s done, what needs to be done, when it needs to be done by, and who is responsible. Get this bit right and you can begin to build productive and long-lasting supplier relationships.

If you like to take a look at SourceDogg’s SRM tool please contact our team on 0203 481 0904 or speak to your Account Manager (maybe even send them an Action on SRM ?).